Managing deal costs

Completing a funding round is a time consuming business. It will take up a lot of your time, and also investors’ and advisers’ time. Time is money, and deal costs are inevitable. But they will also hopefully reflect the value brought by investors and advisers, and they should be manageable if a few guidelines are followed.

Firstly, don’t be afraid to ask about costs. Professional advisers who are experienced in funding rounds will want to talk to you about costs at an early stage, as it’s best if everyone knows where they stand. They might not be able to quote a fixed ncost, at least until a term sheet is in place, but they should be able to agree a sensible budget with you.

Particularly for your first funding round, you may wish to speak to different advisers before you decide who to engage. If you have an established adviser but are not sure if they are experienced in handling funding rounds, it would be sensible to ask them as well as perhaps speaking to others. Take recommendations where you can and remember that engaging the cheapest adviser may cost you money in the long term. Try to engage advisers you can connect with, who have experience in this type of work and who are happy to be flexible and transparent about costs, without necessarily being the cheapest. They may also be able to steer you towards sources of help with meeting their costs.

Many investors also charge a fee to reflect their own costs in the investment process, and are also likely to pass on some or all of their advisers’ costs. If you have the luxury of choosing from alternative investors, their approach to costs is one of the factors to take into consideration when deciding on your investment partner. Try to get certainty early on about your responsibility for fees associated with their investment. They should expect to explain this.

Bear in mind when you are deciding on how much funding to seek that deal costs will likely have to be met from the investment funds you raise. Your financials should include a budget for deal costs that will leave your company with the funds it needs after the deal costs are met.

What happens if your deal falls through? Most funding rounds that make it to term sheet stage do proceed to completion. But in case your deal falls through, you should anticipate how any abortive costs are to be met.

Many advisers will share some of this risk, particularly with the earliest stage companies. They may be prepared to undertake some early work on the basis that no charge will be made if the deal falls through. They may also be prepared to discount costs incurred if the deal is aborted. The important thing is to have the discussion early on so that you do not find yourself being pursued for a bill that you cannot afford to pay.


Campbell Clark
Partner, Blackadders LLP
Contact: 01382 342247
or Kirk Dailly 01382 342453

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